Outlook 2025: Australia's build-to-rent sector is the next real estate hotspot
The build-to-rent (BTR) market with an ESG focus is likely to attract more investor attention in the coming year, driven by new tax incentives, strong population growth and an ongoing housing shortage in Australia, according to by multiple experts.
DWS
"We favour immediate investment opportunities involving well located BTR apartment projects in city fringe locations near transport hubs," Koichiro Obu, head of real estate research for APAC at DWS told AsianInvestor, "particularly districts where a larger proportion of higher income renters reside, to capitalise on the strong front-loaded rental growth prospects."
The global real estate market has been in a downturn for two years, as a result of high interest rates and rising borrowing costs, slowing down transactions. The value of major global real estate markets fell around 25-33% over the last two years, according to Benett Theseira, managing director and head of Asia Pacific at PGIM Real Estate.
PGIM Real Estate
But now countries across the Apac region are beginning to cut rates, and prices are being reset. "Australian markets are currently the most attractive as valuations have reset relatively more significantly and the economy remains strong thanks to strong employment and productivity growth." Theseira added.
Hines
Chiang Ling Ng, the co-head of investment management at Hines believes that in the living sector of real estate, developed Apac nations are following the global trend of renting rather than buying, thanks to the limited housing supply and increasing unaffordability.
"Australia's and South Korea's rental markets are showing promising opportunities for institutional investors, much like Japan did over ten years ago." Ng commented.
SYDNEY AND MELBOURNE
Within Australia, Sydney and Melbourne remain the most affordable locations globally for renters, according to a report published by DWS earlier this month, which suggested their potential as destinations for investors.
Housing prices are high in the two cities, with vacancy rates of less than 2%. Both cities have also experienced net overseas migration as well as strong population growth. But Ng at Hines said research data indicated that many markets were deep into the "bottoming" process, meaning transaction values were likely to pick up.
JLL
"We also believe that more investors would opt to enter the market due to the bottoming out real estate valuations and seek an early-mover advantage in terms of returns that will diminish as the upswing of the cycle matures." Pamela Ambler, head of investor intelligence for Asia Pacific at JLL told AsianInvestor.
Additionally, Australia also proposed legislation that would introduce tax concessions for new residential BTR projects - a policy that is expected to attract more foreign investors.
But investors should also tread with caution. James Kemp, the head of Asia Pacific real estate from Macquarie Asset Management believes that a deep understanding of the local market is a must.
Macquarie Asset Management
"Unlike gateway offices where there are one-to-two markets per country and there is very good transparency of data, the living and logistics sectors are both very domestic where you need to understand tenant demand, planning frameworks, future supply, and location preferences for many sub-markets and you need to have capability to manage assets in diverse locations." Kemp said.
ESG FOCUS
Additionally, global investors are shifting their focus to high quality and ESG compliant assets, according to Obu.
"We believe owners of non-prime stock with high capital expenditure requirements could increasingly look towards divestment and recycle capital into the prime space," said Obu. "This could enhance the pricing gap between older lower quality buildings compared to prime assets with high ESG credentials."
Theseira said ESG factors were also affecting tenant demand, driving "a push for modern, efficient space that is often located in CBDs rather than suburban areas".